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Nifty BAL

One year Price Chart

Bajaj Auto Ltd (BAL) is the world’s largest three-wheeler (3W)

manufacturer having domestic market share of 55% (FY15). Set up in 1930,

the company is the largest 3W, the largest premium motorcycle, and the

second largest two-wheeler (2W) maker in the Indian passenger vehicle

market. BAL is the largest exporter of 2W and 3W in the country with

exports forming 44% of its total sales. The company has two subsidiaries,

namely Bajaj Auto International Holdings BV and PT Bajaj Indonesia. The

company operates in two segments namely, Automotive and Investments.

Investment Rationale

Betting big on export & new product launches

BAL is betting big on improvement in export market and aims to expand

further by entering into another 14 countries. We believe that the firm’s

rising export and premium motorcycle business should enhance revenue

growth in the following years to come. Besides, the company plans to

launch at least three more new products (including a new Pulsar model)

later in FY16E. We believe that BAL’s strategy of launching new products

would help it to ease concern arising out of rising competition and would

help the company partially regain its lost market share in the coming years.

Further, we expect the new launches will help the company to generate

demand and also improve operating margins by easing of raw-material cost

pressures.

Aims to improve its market share in motorcycle segment to 23-24%

The domestic two wheeler industry is still grappling with a slowdown on

falling rural demand and rising competition concern, but with prospects of

GST implementation & rate cut hope, the company expects domestic

motorcycle market to grow at a sluggish pace of ~4-5% in FY16. BAL aims to

retain its lost market share in motorcycle segment to 23-24% in FY16, by

focusing on the entry level and premium/ sport segment.

Focus on export market to boost margins in the upcoming years

BAL’s effectiveness has improved in export markets, which contributes ~44%

of the sales, along with an improvement in realizations and margins. By

entering into 14 new countries, BAL plans to further expand its exports. With

the rising share of pulsars in export markets, the company is expected to

boost its operating margins and is likely to remain at ~20% as cost structures

remain favourable.

Rating BUY

CMP (`) 2,286

Target (`) 2,600

Potential Upside ~14%

Duration Long Term

Face Value (`) 10.0

52 week H/L (`) 2,695/1,912.5

Adj. all time High (`) 2,695

Decline from 52WH (%) 15.2

Rise from 52WL (%) 19.5

Beta 0.9

Mkt. Cap (`cr) 66,150.0

EV (`cr) 65,675.6

Promoters 49.2 50.0 (0.8)

FII 17.0 18.8 (1.8)

DII 8.6 7.0 1.6

Others 25.1 24.2 0.9

Shareholding Pattern

Mar 15 Dec14 Diff.

Market Data

Y/E FY14A FY15A FY16E FY17E

Revenue (`cr) 20,149.5 21,612.0 23,773.2 27,576.9

EBITDA (`cr) 4,105.7 4,116.6 4,921.1 6,066.9

Net Profit (`cr) 3,243.3 2,813.7 3,656.4 4,848.0

EPS (`) 112.1 97.2 126.4 167.5

P/E (x) 20.4 23.5 18.1 13.6

P/BV (x) 6.9 6.2 5.5 4.8

EV/EBITDA (x) 16.0 16.0 13.3 10.8

ROCE (%) 46.2 40.0 41.9 46.1

ROE (%) 33.8 26.3 30.2 35.5

Fiscal Year Ended

June 12, 2015

BSE Code: 532977 NSE Code: BAJAJAUTO Reuters Code: BAJA.NS Bloomberg Code: BJAUT:IN CRG:IN

Volume No. 1 Issue No. 23 Bajaj Auto Ltd.

Exports remain a major mainstay of the company, providing higher

revenue visibility

BAL continued to report strong growth in the international market, with exports growing at a

CAGR of ~11% during FY11-15. Exports, which constitute more than 40% of the company total

sales volumes, continue to be the mainstay of the company. Due to weakness in the domestic

business and rapid growth in the global business, the company increased its share of exports

revenue from ~33% in FY12 to ~44% in FY15. During Q4FY15, BAL’s export volumes declined by

10% YoY impacted by political disruptions in key export markets, viz Nigeria and Egypt. BAL has

an outstanding order book of 110,000 motorcycles from the Sri-Lankan government, which is

yet to be exported. We expect BAL’s increasing penetration in existing markets and preference

for bigger & better bikes will help maintain growth momentum in exports.

However, management of the company believes that the worst for the exports is over and

expects exports to normalise from May 2015. End of the election in Nigeria and improvement in

dollar letter of credits in Egypt would recoup the volumes. Meanwhile, BAL is targeting to

export 2-2.1 million units bikes and three-wheelers in FY16E against 1.8 million units sold in

FY15.

Export markets are also looking

up now with improvement

coming in Nigeria and Egypt.

This will lead to further margin

expansion. BAL is targeting to

export 2-2.1 million units bikes

and three-wheelers in FY16E

against 1.8 million units sold in

FY15.

Sales volume mix on geographical basis

56%

44%

Domestic Exports

Aims to regain its lost market share in domestic two wheeler industry

Due to sluggishness in the domestic two-wheeler market, BAL lost some of its market share in

the two wheeler domestic motorcycle market from 20.1% in FY14 to 16.5% in FY15 in the wake

of tepid demand for from the executive segment “Discover” that account for the largest

proportion of the company’s sales volumes. However, the company regained some of the

confidence with high sales in April’15, which in turn led to ~3 bps improvement in market share

to 19% currently in April’15. Optimism came on account of higher sales of the company’s bikes

like Platina, CT100, and Pulsar -a segment in the month of April’15, where BAL, is the market

leader with 44% share of the total motorcycle market. With strong focus on basic and premium

bikes, which remained unaffected by the overall decline in two-wheeler sales, the company

aims to regain its lost market share to 23-24% by the end of FY16E.

Domestically, the newly

launched CT100 model is well

received and should see good

volumes. Pulsar would benefit

from a higher premium segment

share and is likely to drive

market share gain for the

company.

Due to weak performance from mid-segment offering --Discover, the company is targeting

only on entry and premium bike segment. BAL’s sales volume of Platina and CT100 has grown

by two-fold in a year and its market share in entry level bike segment is closer to 40% in

April’15 from 23% a year ago. Similarly, in the premium segment, the company introduced

more variants of its premium offering Pulsar. Cumulatively, the market size of entry and

premium segments has grown which has helped the company to sustain its market share in

these two segments.

BAL plans to launch at least

three more new products

(including a new Pulsar model)

later in FY16E.

For private circulation only

BAL’s market share trend in domestic motorcycle industry

18.5 17.7

16.3 16.6 15.2

16.5

0

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12

14

16

18

20

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 FY15

%

Continues to hold leadership position in domestic three-wheeler market

BAL has strong command in the three-wheeler market, with market share (including exports)

of ~55% in FY15. BAL surpassed the domestic three-wheeler industry with 25% YoY growth in

FY15 against the industry growth of 11%. We believe that the new products launch in the

diesel segment will help the company to further enhance its leadership position in three-

wheeler market. However, for FY16, BAL anticipates the three-wheeler industry to grow at a

slower pace of 5% due to lower permits and high base of FY15. Besides, with an aim to mark

an entry in four-wheeler market, BAL plans to launch the new quadricycle (RE60) in FY16,

providing an additional growth opportunity.

New launches to boost volume growth

Despite the ongoing moderate demand environment on passive consumer sentiments led by

macro-economic concerns and rising petrol & essential parts prices, the firm has left no stone

unturned to generate sales milieu. The company has long ruled the Indian motorcycle market

with its Discover and Pulsar range of commuter and executive segment bikes. However, Hero

Motors’ Hunk, Achiever, xtreme & Impulse and TVS Motors’ Apache models are increasingly

targeting BAL's turf.

To encounter all these impediments and to further strengthening its steadily growing presence,

BAL has already rolled out five new models (Platina ES, CT100, RS200, AS150 and AS200) since

January 2015. Further, the company plans to launch at least three more new products

(including a new Pulsar model) later in FY16E, in its bid to maintain market leadership in the

face of fierce competition from Hero Motors and TVS Motors. Recently, in -line with the launch

of pulsar adventure sports series, the company unveiled its new range of sporty bikes under

the Pulsar brand, including higher capacity bikes going up to 500 cc, with a market share of 43%

in FY15 across engine capacities, making it the country's number one sports bike for 14 years in

a row. In its strategy to sold 55,000 units of Pulsar series per month in the domestic market,

the company is looking to increase its market share in sports segment to 50% in FY16E. Further,

the company is working on its new Avenger model in order to further pep-up its Discover

commuter bike portfolio.

We expect that all these super launches will help the company to generate demand and also

improve operating margins by easing of raw-material cost pressures.

Domestic motorcycle industry to remain muted in FY16E

The company acknowledged the concern that the domestic two wheeler industry is still

grappling with a slowdown on falling rural demand and rising competition concern. The rural

demand for automobiles has been adversely impacted by unseasonal rains in March. Poor crop

realization and slowdown in rural wages have pulled back the rural economy, impacting retail

off-takes in markets such as Bihar, Madhya Pradesh and sugarcane growing areas of Uttar

Pradesh and Maharashtra. BAL expects the domestic motorcycle industry to grow by 4-5% in

FY16E. However, the expectation of market share improvement will allow the company to

outpace the industry growth. While, the demand from domestic three-wheeler industry could

see some improvement on new permits issued for 3Ws.

The implementation of GST would allow BAL to freely source quality material given the equal

tax rate across states. While falling fuel costs, weak commodity prices and declining rupee

value are positives, any further rise in prices due to excise duty rollback can be detrimental to

overall sales for two-wheeler companies, including Bajaj Auto. The company, as of now, has

deferred its decision to increase prices.

53

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6,4

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5,3

6,4

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1,9

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5,1

9,0

93

49

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14

35

46

04

0

100000

200000

300000

400000

500000

600000

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

un

its

Overall domestic Overall exports

BAL expects the domestic

motorcycle industry to grow by

4-5% in FY16E. However, the

expectation of market share

improvement will allow the

company to outpace the industry

growth.

Quarterly sales volumes trend

Given BAL having the first mover advantage, wide-spread reach with an established

distribution network and a strong brand presence in the major markets of Africa and Latin

America, provides an add-on advantage to the company.

Muted set of numbers in FY15

Despite of 1.5% YoY decline in sales volume, BAL reported 7.3% YoY growth in its standalone

revenue at `21,612 crore in FY15, on account of improved realizations from nominal price

hikes. BAL recorded EBITDA of `4,116.6 crore, the highest in the company’s history at an

industry leading EBITDA margin of 19.0%. BAL’s net profit for FY15 came at `2,813.7 crore v/s

`3,243.3 crore, which includes a one-time exceptional charge of `340.3 crore towards national

calamity contingent duty.

While in Q4FY15, the company’s revenue declined 3.9% YoY to `4,739.3 crore mainly due to

16.4% YoY & 20.5% QoQ decline in overall sales volumes to 782,669 units in Q4FY15. However,

14.6% YoY realisation growth, led by better product mix, higher export realization, and price

hike helped the company in containing the decline in revenue. However, despite of decline in

raw material prices, the overall feebleness in volumes and revenues mirrored in the operating

margins, which came down to 17.6% in Q4FY15 against 18.8% in the same period last year.

Further, due to higher depreciation and other expenses and a drop in other income, the

company’s net profit declined by 17.6% YoY to `621.6 crore in Q4FY15.

During Q4FY15 BAL’s total

revenue declined by 3.9% YoY as

weak volumes dragged the

company’s revenue growth.

Volumes declined 16.4% YoY at

7.8 lakh units. EBIDTA dragged

down largely due to one‐off‐

expenses, including loss on

account of a fire at the Akurdi

plant in January 2015 and

increase in gratuity charge to

actuarial valuation.

The company continued to show

lackluster performance on

domestic bike segment, with

market share declining by 332

bps YoY to 15.2% in Q4FY15,

while its domestic market share

in three‐wheeler space rose 384

bps YoY to 42% in the quarter.

Lower sales volumes were offset by strong realization growth

On domestic front, BAL’s bike sales fell 23% YoY and 13.5% QoQ to 379,683 units vis‐à‐vis

industry decline of 6.4% YoY due to constantly growing volumes of HMSI. The company’s

domestic three‐wheeler sales grew 10.5% YoY to 48,628 units vis‐à‐vis 0.4% YoY growth in

industry volume. Three‐wheeler contributed 14% to total volume compared to 11.8% in

Q4FY14. The company continued to show lacklustre performance on domestic bike segment,

with market share declining by 332 bps YoY to 15.2% in Q4FY15, while its domestic market

share in three‐wheeler space rose 384 bps YoY to 42% in the quarter.

On export front, the company’s revenue, which accounts for 46% of total net sales, grew by

19% YoY to ~`9,760 crore in Q4FY15. BAL’s sales volumes from export market fell by 11% YoY

to 354,604 units, mainly due to 11.4% YoY and 8% YoY decline in sales volume from bike

exports and sales volume from three‐wheeler exports to 293,532 units and 61,072 units,

respectively in Q4FY15 owing to geo political turmoil coupled with currency issue in African

countries. Meanwhile, export realisations grew 13% YoY and 7.9% QoQ.

4,932.3 5,252.4 5,963.1 5,657.2

4,739.3

931.4 925.1 1,126.8 1,226.8 837.8

-

2,000.0

4,000.0

6,000.0

8,000.0

Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15

` c

rore

Revenue Ebitda

Quarterly performance trend

Profit & Loss Account (Standalone)

Y/E (`cr) FY14A FY15A FY16E FY17E

Share Capital 289.4 289.4 289.4 289.4

Reserve and

surplus 9,318.7 10,402.8 11,800.8 13,350.5

Net Worth 9,608.0 10,692.2 12,090.2 13,639.9

Long term

borrowings 57.7 111.8 106.2 104.1

other liability 87.4 57.6 63.3 69.7

Deferred tax

liability 143.2 141.6 141.6 141.6

Long-term

provisions 121.0 82.4 74.2 66.8

Current Liability 4,730.2 4,476.8 4,583.5 4,948.0

Total Liabilities 14,747.6 15,562.3 17,059.0 18,970.0

Fixed assets 2,150.1 2,172.2 2,193.9 2,215.8

Investment 6,259.9 3,352.8 3,654.5 3,983.4

Loans & adv 719.9 511.1 572.4 641.1

Other assets 1.0 - - -

Current Assets 5,616.6 9,526.3 10,638.2 12,129.6

Total assets 14,747.6 15,562.3 17,059.0 18,970.0

Y/E (`cr) FY14A FY15A FY16E FY17E

Total revenue 20,149.5 21,612.0 23,773.2 27,576.9

Operating

Expenses 16,043.8 17,495.5 18,852.2 21,510.0

EBITDA 4,105.7 4,116.6 4,921.1 6,066.9

Other Income 706.4 582.4 599.9 707.9

Depreciation 179.6 267.4 294.1 308.8

EBIT 4,632.5 4,431.6 5,226.8 6,465.9

Interest 0.5 6.5 3.4 1.8

Exceptional items - 340.3 - -

PBT 4,632.1 4,084.8 5,223.4 6,464.1

Tax 1,388.7 1,271.1 1,567.0 1,616.1

PAT 3,243.3 2,813.7 3,656.4 4,848.0

Y/E FY14A FY15A FY16E FY17E

EBITDA Margin (%) 20.4 19.0 20.7 22.0

EBIT Margin (%) 23.0 20.5 22.0 23.4

Reported NPM (%) 15.6 12.7 15.0 17.1

ROCE (%) 46.2 40.0 41.9 46.1

ROE (%) 33.8 26.3 30.2 35.5

EPS (`) 112.1 97.2 126.4 167.5

P/E (x) 20.4 23.5 18.1 13.6

BVPS(`) 332.0 369.5 417.8 471.4

P/BVPS (x) 6.9 6.2 5.5 4.8

EV/Net Sales (x) 3.3 3.0 2.8 2.4

EV/EBITDA (x) 16.0 16.0 13.3 10.8

Key Ratios (Standalone)

Balance Sheet (Standalone)

Valuation and view

BAL bestowed by its varied geographical presence, product mix, and greater product pipeline visibility is all set to compete with tough market environment. Further, low commodity price and higher export realization can be strong margin drivers ahead. Thus, we believe that with new launches across the motorcycle segment viz commuter, executive and premium, BAL is expected to perform well in the coming quarters.

We initiate BUY rating on BAL. At a current CMP of `2,286,

BAL is currently trading at an EV/EBITDA of 13.3x for FY16E

and 10.8x for FY17E. Considering the company’s strong

fundamentals, we recommend ‘BUY’ with a target price of

`2,600, which implies potential upside of ~14% to the CMP

from 1 year perspective.

For private circulation only

Disclaimer : This document has been prepared by Funds India and Dion Global Solution Ltd. (the company) and is being

distributed in India by Funds India. The information in the document has been compiled by the research department. Due

care has been taken in preparing the above document. However, this document is not, and should not be construed, as an

offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to

in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or

published, in whole or in part, without prior permission from the Company.

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